Debt-pressured people in 30s, 40s spend less amid high interest rate
Kim Ji-woong, a salaried worker in his mid-40s, says his family is increasingly tightening their belts and spending less as the key interest rate has remained steady at 3.5 percent for more than a year. The high interest rate is weighing on his family as he has to repay a housing loan worth hundreds of millions of won.
“Cutting down on living costs is the least I should do, so that I can pay principal and interest every month,” he said. “For instance, my family used to travel abroad a couple of times a year but it will not happen this year.”
Kim represents borrowers in their 30s and 40s who, according to the Bank of Korea (BOK), suffered most among all age groups after the BOK’s base rate in January 2023 was hiked to 3.5 percent — the highest since November 2008. As a result, the interest rates levied on housing mortgages and credit loans are two or three percentage points higher compared with before July 2021.
On top of those burdened with debt, those who used to consume a lot — the upper five groups of people out of 10 groups, as classified by the BOK according to the amount of their annual spending — slashed spending amid the rising interest rate.
In terms of income, meanwhile, those belonging to somewhere between the top fourth and top seventh out of 10 groups cut spending the most.
“The high interest rate indeed is weakening private spending,” the BOK said in its report released, Sunday, noting the high interest is especially hitting those in their 30s and 40s who earn more than the average of all groups of salaried workers but less than the top earners.”
The BOK correspondingly underlined the need to “implement policies to reduce the financial burden on the borrowers,” considering those in their 30s and 40s will need to spend more for education and other goods and services.
Consumer spending grew at 1.8 percent in 2023, remaining below 2.1 percent in 2019, right before the start of the COVID-19 pandemic. The rate, according to multiple financial institutions, may decelerate in 2024.